Lamb, mutton and wool prices have had an unprecedented run during the year, with support from both the domestic and global markets.

However, the year has not been without challenges. An extremely dry winter and start to spring deteriorated pastures and crops, particularly across NSW, WA, SA and Tasmania. As a result, lamb and mutton turn-off increased – but robust domestic and international demand saw the market buck the typical supply/price relationship.

High prices and a return to more favourable seasonal conditions incentivised producers to stay or move in to sheep production. Encouragingly, industry surveys indicate an increase in producers looking to expand their operations, at a time when farm cash income for Australian lamb producers is projected to be the highest in 20 years (ABARES). Furthermore, ram sales have reportedly been exceptionally strong this year and the uptake and success of the Lifetime Ewe Management program continues to grow.

So, what dynamics were driving the Australian sheepmeat market during 2017?

Second half of 2017 brings surge in processing levels

For the first four months of the year, Australian lamb slaughter tracked well below year-ago levels. This was largely due to lower marking rates in the second half of 2016, resulting in reduced lamb availability, along with strong lamb, mutton and wool prices encouraging producers to retain ewe lambs for future breeding and Merino wether lambs for wool production.

May was the turning point for lamb and mutton slaughter. Processing levels moved above year-ago levels, and have remained higher in the six months following (October is the latest available ABS data). For the May­–September period, many key sheep producing regions across the country experienced below-average rainfall. Flock rebuilding efforts were slowed as a result, with producers having to turn off stock as the season deteriorated. A much needed break in the season brought some relief to producers in WA in September, and to those in the east in October – reviving producer sentiment and restocking activity.

For the year-to-October, the national lamb kill was 18.6 million head – marginally lower (-1%) than the same period last year, although up 2% on the five-year average. Sheep slaughter was up 5% year-on-year, at 6 million head – largely due to the surge in processing in second half of the year. In fact, October marked the highest monthly sheep kill since November 2015.

Prices resist the seasonal decline

Lamb and mutton saleyard price indicators have been historically high this year, moving into record territory in June, and wool prices have had unprecedented growth over the last 12 months.

The national trade lamb indicator (weekly average) has remained above 600¢/kg cwt for the majority of 2017, dipping below this level for only 10 weeks of this year-to-date. Interestingly, this is the same number of weeks in 2016 that the weekly national trade lamb indicator exceeded 600¢/kg cwt – with the indicator spending most of 2016 in the mid-500¢/kg range.

This year, the lamb market has resisted the seasonal decline in prices which typically coincides with the new season lambs hitting the market in spring. In 2015 and 2016, the national trade lamb indicator finished spring 13% and 5% lower than where it started the season, respectively.

The strength of the domestic and international markets has provided strong price support and so, while supplies increased during spring this year, so too did prices. In the final week of November, the national trade lamb indicator averaged 5¢ higher than the opening week of September, at 612¢/kg cwt.

The strength of saleyard lamb indicators in 2017 has been evident in the eastern states, as well as in WA. For the year-to-date, the eastern states trade lamb indicator averaged 627¢/kg cwt – up 11%, or 60¢/kg, year-on-year. For the same period, the WA trade lamb indicator increased 25%, or 117¢/kg, year-on-year, to 590¢/kg cwt.

The national mutton indicator has also out-performed 2016 levels this year and hit new highs (527¢/kg cwt) at the beginning of June. For the year-to-date, the indicator averaged 436¢/kg cwt – 25%, or 88¢, above where it averaged last year.

Carcase weights drive production

Nationally, lamb production for the year-to-October reached 424,365 tonnes cwt – 1% higher year-on-year, and 6% above the five-year average. In fact, this is the largest volume of lamb produced for the January–October period on record.

As mentioned above, lamb slaughter was down 1% year-on-year at 18.5 million head, so it was not numbers processed that drove the increase in production, but heavier lamb carcases. As a comparison, in 2015 there were over 19 million lambs processed for the same 10-month period, yet production was 423,870 tonnes cwt. The difference is that lamb carcases averaged 22.25kg in 2015, and 22.86kg in 2017.

Over the last 10 years, lamb carcase weights have increased 190g/year on average. While carcase weights are largely influenced by seasonal conditions in the short-term, the long-term growth has been underpinned by several factors; the transition towards meat and dual-purpose breeds, improving genetics and better livestock management. This year especially, however, high prices being paid at saleyards have incentivised producers to grow lambs to heavier weights.

Mutton production lifted 9% from year-ago levels to 150,420 tonnes cwt – although down 2% on the five-year average. Mutton carcase weights also followed an upwards trend this year, averaging 24.94kg for the year-to-October.

Growth in export markets

2017 has seen growth in many of Australia’s major sheepmeat export markets. Supplies from Australia’s key competitor, New Zealand, have been on a downwards trajectory – giving Australia a competitive advantage in the strong global market.

With only one month of data for 2017 yet to come in, Australian lamb exports for the January–November period reached 229,308 tonnes swt. This was 5% higher than the same time last year, and 13% above the five-year average.

Assuming average seasonal conditions, production in 2018 looks likely to remain fairly steady, with lamb and mutton slaughter and carcase weights shaping up to be similar to 2017 levels.

Keep an eye out for MLA’s 2018 Sheep Industry Projections in January, which will provide a market outlook and insights behind expectations on production, as well as key markets to watch for in the New Year.